HSBC has lowered Vietnam's economic growth forecast for this year to 5.1 percent from its earlier 5.5 percent in April, citing weak domestic demand and low credit growth.

The number is 0.2 percentage points lower than the UK-based bank had forecast late last year.

The HSBC purchasing managers index for the health of the manufacturing sector decreased to 48.8 points in May from 51 points last month.

An index below 50 indicates a contraction, and it is the first time it has happened since February. Input costs rose in May for the fifth consecutive month, and both manufacturing output and new orders saw a decline.

Together with the issues mentioned above, consumer prices, which fell 0.06 percent last month, reflected low consumption, the bank said.

Vietnam's economic recovery remains "fragile," it added.

News website VnEconomy on June 4 quoted HSBC as saying most of the recent economic uncertainties were caused by the high level of non-performing loans.

It suggested the government acts with haste on bad debts saying failure to do so will result in "unenthusiastic" consumption and investment as a result of banks' tightening lending, for fear of more bad debts. This would negatively impact economic growth, the report said.

The report called "important," the decision made by the government to establish the Vietnam Asset Management Company, which is expected to buy 60 percent of the total bad debts of US$7.8 billion, or 6 percent of the outstanding loans. The company is expected to be set up soon.

However, the report expressed concerns about the company's ability to perform effectively, given the meager capital of $24 million. It suggested strict oversight of the company's activities.